Transcript of a Press Briefing by Masood Ahmed

MR. AHMED: Shall we start? I am Masood Ahmed and this is our regular press briefing, embargoed until 11 o'clock. I just have a couple of announcements before we take questions.

First, just to let you know that the Managing Director will be speaking at a conference at the Columbia Business School on February 16th, that is tomorrow, and the conference is on challenges and opportunities in Latin America, in investing in Latin America, which is being organized there. His speech will be posted on the Fund's website. If there are opportunities for press availability, our media relations team will be in touch with you.

Secondly, to let you know that today we here at the Fund our Monetary and Capital Markets Department is co-hosting with the Dutch Central Bank a seminar on aging, pension risk-management, and financial stability. This is a seminar that has brought together high-level policymakers, private-sector practitioners, and academics to look at the range of issues around this important question. We will issue a press release on the seminar later today and we will post most of the presentations on our website. Let me just say before taking questions that our next briefing is going to begin as always in 2 weeks on March 1, here at the same time.

Let me now take questions. Today we seem to have many people at the Media Briefing Center, so I look forward to questions also from the thirty-plus journalists that have long been online as well as those who are here despite the weather. So let me take questions. Please use the mike.

QUESTION: Today you put out the Public Information Notice about Italy, and my question, I will try to be clear if I can, is about the growth prediction for 2007. From what I see, the IMF has projected a 1.5 percent growth on this document and what had been widely anticipated was a 1.4 percent growth for 2007. So I would like if you could comment on this, like the IMF has a more optimistic view about the possibility of Italy for next year. Also in the light of the last data that came out from the Italian Statistics Bureau about the growth for 2006 that has been -- percent.

MR. AHMED: Thank you very much. First of all, just to confirm for those of you who have not been following it, that we have indeed put out today the Public Information Notice on the Board discussion that took place on February 7 on the Article IV consultation with Italy. Although this material in Italy has been embargoed until 11 o'clock, I have just been told by my colleagues that a couple of news agencies have just breached the embargo a few minutes ago, which I regret, but I want you to be aware of that.

Now I will come back to the specific question that you raised. It is indeed the case that the staff report that we had estimated growth at 1.7 percent for this year and 1.4 percent for next year, but I think it is also the case that the stronger than expected preliminary numbers that we have had for the fourth quarter of 2006 on GDP which had been recently released, as you say, suggest that these estimates are now likely to be too conservative. So we are now going to be looking in the context of that to review how we should revise our estimates in that light.

Normally in the context of the WEO exercise when there is a revision, that would be an opportunity for us to look at all estimates including for Italy.

QUESTION: Thank you very much.

MR. AHMED: Thank you.

QUESTION: Have you got any update for us regarding the Board meeting yesterday on the changes to the 1977 clauses or articles or whatever you call it.

MR. AHMED: For those of you who haven't been following with the same degree of closeness, I think that the reference was just made was to the 1977 Decision on Surveillance. As you know, as part of the process of the medium-term strategy, we are looking at how we can make sure that the framework that guides our work on surveillance which is the core business of the Fund is brought up to date with best practice. And it is in that context that the Board is looking at whether and if so how to revise the 1977 decision which is one of the core pillars of that framework.

As you say, there are a series of informal discussions including a discussion at the Board that book place yesterday. I think it is fair to say that what that process is doing is ensuring that we have looked not just at the question of whether to revise the decision, but more importantly, how in any revision of the decision one could make sure that the objectives of the exercise which is to try and ensure that we have a framework or a basis that guides our surveillance work and that is in line with our current best practice can be best achieved.

That discussion took place yesterday, it is an ongoing process, and we will continue with that and the Board will come back to it in due course. We have not fixed a date yet for the next time.

QUESTION: May I ask a follow-up question?

MR. AHMED: Please.

QUESTION: What do you think has been the main factor that sustained a bigger and better than expected growth? And what is in your assessment the most urgent reform that Italy has to pursue this year in the field of all the liberalization reform that we are trying to implement?

MR. AHMED: First of all, let me point you also to the actual -- in the staff report which has most of these details. I think the way I would summarize what the main conclusions were of the Article IV consultations that have just taken place and which the Board discussed is that, first of all, the directors noted a number of positive developments. The first of these is the fact that there is a broad-based economic upswing as I mentioned in response to your earlier question. There is the stable inflation rate, the signs of economic restructuring, and also continued employment gains. So that is one dimension of it.

Secondly, I think they noted buoyant revenues on the fiscal side which in the 2007 will likely bring the deficit under 3 percent of GDP, another important dimension. Incidentally, I should say that the 2006 deficit net of one-off operations may also come in under 3 percent of GDP.

The third area that they noted were the two recent liberalization packages and the actions to enhance competition and transparency in financial markets. So this is all paraphrasing a bit what was on the positive side in the Public Information Notice that you've got.

In that same discussion, directors also underscored the importance of moving forward on a number of areas, and particularly taking advantage of the current strong economic environment, and there are four areas that I want to list for you. First, move forward on expenditure-based fiscal consolidation which should address the key spending areas of public employment, local government finances, and health care, and to do so within a multiyear spending framework. This should as planned indeed by supported by overhauling the current budget procedures which can be cumbersome in some instances.

Secondly, safeguarding the financial impact of already legislated pension reform and providing incentives to lengthen the average working life which would also support growth and welfare.

Third, further competition-enhancing reforms across a broad front which again are obviously aimed at raising the potential growth rate.

And fourth, developing an adequate social safety net, while directors cautioned against any reversal of prior liberalization of labor contracting which they felt had contributed buoyant economic growth in this past decade. That is kind of both the assessment of the very positive current conjuncture, but also some of the medium-term challenges, and as I say, more detail on those and of the staff's own assessments that underpin that are in the Public Information Notice, but also it will be in the staff report.

Before I take any more questions I should tell my colleagues that if there are questions from the Media Briefing Center, none of them are coming through on the technology I've got which shows me a keyboard rather than any questions. So there is something gone wrong on the technology, and if there are questions, what I would recommend is somebody just scribbles it on a piece of paper, and although it will be a bit less high-tech, we might be able to answer them more effectively. If somebody could stand up and speak on behalf of one of the people who have sent questions.

QUESTION: [Read aloud by an IMF Media Relations staff member.] A panel including former Federal Chairman Alan Greenspan and ECB President Jean-Claude Trichet recently recommended that the IMF sell 6.6 billion in gold to put its finances on a better footing. Is the IMF considering such a move?

MR. AHMED: Thank you very much. As you say, there was a group of people headed by Andrew Crocket but including a number of other important central bank governors and other eminent personalities who had been asked by the Managing Director of the IMF to look at the Fund's current income model and to identify ways in which over the medium term we could move toward a sustainable financing model that better reflects what the Fund currently does and reflects the interests of the membership. That group reported back and their report which concluded that the current income model is no longer adequate for the Fund came up with a package of measures which in their view would both better reflect what the Fund currently does, and would also provide the income required to meet the operating costs of the Fund on a sustainable basis going forward.

As part of that package, one of the elements they recommended was to look at the possibility of creating an endowment which would be funded by the sale of a limited portion of the gold reserves that the Fund holds, and then the income from this endowment could contribute as one of the elements toward the running costs of the Fund.

That package of measures, including that particular proposal, which in making that proposal the committee indicated very carefully that they felt that if the membership were to go forward with it, it would need to be done in a way that was both tightly ring-fenced, it would be need to be done in a way that did not disrupt the market by being part of the planned sale of gold that central banks are planning under an agreement, and so that package of measures including the potential recommendation of selling gold has been made. It is now going to be discussed. Our own Board is obviously going to have a set of discussions around it, the Managing Director is going to listen to the views of the Board, to the views of the membership, and then based on that, the Managing Director will put forward a set of formal proposals to the Board which will then be the actual proposals which will be considered.

I would just say that the proposals that have been made by the committee are an eminent group of outside people who have made recommendations to the Managing Director as the basis for consultation, but based on that the Managing Director will at some point during the course of the year make proposals to the Executive Board on how he believes the issue of addressing the model of the Fund addressed going forward.

QUESTION: Masood, yesterday the U.S. Treasury -- shuffling around money that it has stored in the IMF to clear the arrears of Liberia. The Managing Director did point out at the conference that it was an urgent matter. Is there any possibility here that with that sort of commitment from the U.S. that the Fund could any way move forward with the program? I know it has not been done before, but any way move forward with the program for Liberia?

MR. AHMED: On Liberia, I think maybe there are three points that I would like to make. First, just to reiterate as the Managing Director said in his own statement, that it is an urgent matter to move forward with addressing the question of Liberia's debt which we believe to be unsustainable. It is in that context that we have put together a proposal whereby resources that have been contributed by members to the Fund as part of an account, as part of an overall strategy of protecting the Fund against the financial impact of protracted arrears, that these resources which belong to the members who have contributed them, that a portion of these resources could be used with the consent of these members to help clear the arrears that Liberia has to the IMF. So that is kind of point one.

And there is a well-established process as to once those arrears have been cleared we could then get into a regular program type relationship with Liberia. Of course, the end point here is also to move toward reducing and eliminating the unsustainable portion of the debt of Liberia, so we are working toward a process which would then at one point lead to their debt being reduced under the HIPC and the MDRI. That is kind of point one.

Point two is that it is in that context that we very much welcome the announcement made by the U.S. Treasury which clearly is very important not just in itself, but because it does send a message and a signal which we hope that other shareholders who are contributors to that same account will also be picking up.

The third point I want to make on Liberia is that while it is not feasible for us to enter into a program-type relationship, we have in fact been working with the Liberian authorities in a number of ways. We have technical assistance that we have been providing including through short- and long-term experts that have been supporting the authorities in our core areas. We have had a RESREP in the field. We have had a stock-monitored program which has been underway for over a year. Indeed, we are now planning to have a mission which will go to Monrovia in early April and it will have three purposes. First, it will discuss the budget for the fiscal year 2007-2008. Second, it will review progress in implementing the authorities' policies under the 2007 staff-monitored program. And to reach understanding on a program for fiscal year 2007-2008. If the shareholders can agree on the financing issue I was talking about, and obviously subject to the Board being prepared to take the necessary policy decisions, it would be then possible to move expeditiously with the arrears clearance and the subsequent debt relief.

Another proxy question from the Media Briefing Center?

QUESTION: [Read aloud by an IMF Media Relations staff member.] The government of Nicaragua has just asked the IMF for a mission to Nicaragua to negotiate a new program with the country. Have you received the request, and is the IMF sending the mission anytime soon?

MR. AHMED: This is the sort of question for which I need to refer to my briefing book which I am now in the process of doing. This is what I can say on that now, that the authorities have indicated clearly that they will seek to negotiate early on a new program with the Fund. We expect to begin a policy dialogue in March, that is next month, toward this program to maintain macroeconomic stability and advance the structural reform agenda and to pave the way for Nicaragua to help them achieve the Millennium Development Goals. This program obviously would be a successor to the program that has been in place.

That is the most specific that I can be in terms of the timing of the mission. As I say, we expect to begin a dialogue in March, and I do not have a more precise date than that on it now.

QUESTION: Argentina is having bilateral discussions with members of the Paris Club regarding restructuring of its debt. What is the Fund's role in that restructuring? As far as I understand the Paris Club rules, there cannot be any sort of restructuring or forgiveness if there is not an IMF program. Is that true?

MR. AHMED: I can give you the answer to the second of your questions right away, which is to say that it has generally been the norm for Paris Club restructurings to be accompanied by an IMF-supported program. That is indeed the case.

As to the precise status of the discussions between Argentina and the members of the Paris Club, let me see if I can give you something more specific. I will come back to you and give an answer, which we will then post on our Media Briefing Center as well.

[ANSWER: All questions regarding Argentina and the Paris Club should be addressed to Club members. The IMF is not a member of the Club, so we are not in a position to comment on their policy decisions or the status of their negotiations.]

QUESTION: [Read aloud by an IMF Media Relations staff member.] Today the European Central Bank monthly bulletin stated that Italy -- threshold of a 3 percent deficit will have to implement additional measures according to the ECB's view.

MR. AHMED: I do not want to get into commenting on the ECB's statement because I have not seen it myself, but in terms of our own views on the fiscal situation, I had already explained in answer to an earlier question that our assessment is with the current buoyant revenues in particular, we believe that these will help in the context of the budget for 2007 to bring down the deficit under 3 percent of GDP in that year. So that is our view on it. I am not in a position to comment on a report that has come from the ECB.

There are no further questions? Thank you very much. This is embargoed until 11 o'clock. Our next briefing will be in two weeks' time in the same place at the same time. Thank you.
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